What is Gratuity Act, 1972?

The Payment of Gratuity Act, 1972, is a crucial piece of social security legislation in India that provides for the payment of gratuity to employees upon their retirement, resignation, death, or disablement. This Act ensures that employees who have rendered long and continuous service receive a financial benefit as a token of appreciation for their contribution to the organization. This article provides a comprehensive overview of the Act, its key provisions, and its implications for both employers and employees.

Applicability of the Act:

• The Act applies to factories, mines, oilfields, plantations, ports, railway companies, motor transport undertakings, companies, shops, and other establishments employing 10 or more workmen.

• The Act also applies to establishments that were once covered under the Act, even if their employee count later falls below 10.

• The Central Government is the appropriate government for establishments under its control, having branches in more than one state, or those related to major ports, oilfields, railways, or mines.

Key Definitions (Section 2):

• Appropriate Government: The Central Government for establishments under its control or having branches in multiple states, and for major ports, mines, oilfields, and railway companies; the State Government for all other establishments.

• Employee: Any person (other than an apprentice) employed for wages in any kind of work, manual or otherwise, excluding those under the Central or State Government and governed by other gratuity rules.

• Employer: The person or authority responsible for the supervision and control of employees in an establishment.

• Continuous Service: Uninterrupted service, including periods of leave, sickness, accident, lay-off, strike, or lock-out, and absence from duty without leave.

• Completed Year of Service: Continuous service for one year.

• Controlling Authority: An authority appointed by the appropriate government to administer the Act.

• Wages: All emoluments earned while on duty or leave, paid in cash, including dearness allowance, but excluding bonus, commission, house rent allowance, and overtime wages.

• Superannuation: The attainment of an age fixed in the contract or conditions of service for retirement.

• Retirement: Termination of service other than superannuation.

• Family: Includes the employee, their spouse, children, dependent parents, and the widow and children of a predeceased son.

Payment of Gratuity (Section 4):

• Gratuity is payable to an employee on termination of employment after rendering continuous service for not less than five years.

• The reasons for termination can be superannuation, retirement, resignation, death, or disablement due to accident or disease.

• The five-year service requirement is not necessary in cases of death or disablement.

• The gratuity is paid at the rate of 15 days’ wages for each completed year of service or part thereof in excess of six months.

• For seasonal establishments, gratuity is paid at the rate of 7 days’ wages for each season.

• For piece-rated employees, daily wages are calculated based on the average of the total wages received in the three months preceding termination.

• The amount of gratuity payable to an employee shall not exceed the amount notified by the Central Government from time to time.

• If an employee is disabled and continues to work on reduced wages, their gratuity is calculated based on their wages before and after disablement.

• Gratuity can be forfeited in cases of misconduct, riotous behavior, or acts of moral turpitude.

• In case of death, gratuity is paid to the nominee or heirs, and if the nominee or heirs are minors, the amount is deposited with the controlling authority.

Compulsory Insurance (Section 4A):

• Employers (excluding those under the Central or State Government) must obtain insurance for their liability for gratuity payment.

• Employers with an approved gratuity fund can be exempted from this provision.

• Employers with 500 or more employees who establish an approved gratuity fund can also be exempted.

Power to Exempt (Section 5):

• The appropriate government can exempt establishments from the Act if they provide gratuity or pensionary benefits that are not less favorable than those under this Act.

• The government can also exempt specific employees or classes of employees if they receive equivalent benefits.

Nomination (Section 6):

• Employees must make a nomination for the payment of gratuity.

• Nominations must be in favor of family members if a family exists.

• If there is no family, the nomination can be in favor of any person but becomes void upon acquiring a family.

• Employees can modify their nominations.

Determination of the Amount of Gratuity (Section 7):

• Employees must apply to the employer for payment of gratuity.

• The employer must determine the amount of gratuity and notify the employee and the controlling authority.

• The employer must pay the gratuity within 30 days of it becoming payable.

• If the payment is delayed, the employer must pay simple interest at a rate notified by the Central Government.

• In case of disputes, the employer must deposit the admitted amount with the controlling authority.

• The controlling authority will decide the dispute and direct payment.

Inspectors (Section 7A and 7B):

• The appropriate government can appoint inspectors to oversee the implementation of the Act.

• Inspectors have the power to enter premises, examine records, and require information.

Recovery of Gratuity (Section 8):

• If the employer fails to pay gratuity, the controlling authority can issue a certificate to the Collector to recover the amount as arrears of land revenue.

Penalties (Section 9):

• Employers who make false statements to avoid payment or contravene the Act are punishable with imprisonment or fine.

Exemption of Employer from Liability in Certain Cases (Section 10):

• Employers can be exempted from liability if they prove they took due diligence and the offense was committed without their knowledge.

Cognizance of Offences (Section 11):

• Courts can only take cognizance of offenses based on complaints made by or under the authority of the appropriate government.

Protection of Action Taken in Good Faith (Section 12):

• No legal proceedings can be taken against anyone acting in good faith under the Act.

Protection of Gratuity (Section 13):

• Gratuity is protected from attachment by any court order.

Act to Override Other Enactments (Section 14):

• The provisions of the Act override any inconsistent laws or agreements.

Power to Make Rules (Section 15):

• The appropriate government can make rules to carry out the purposes of the Act.

Key Provisions:

• Gratuity Payment: The Act ensures that employees receive a gratuity upon termination of service after five years of continuous service.

• Calculation of Gratuity: Gratuity is calculated based on 15 days’ wages for each completed year of service.

• Protection of Gratuity: Gratuity is protected from attachment by courts.

• Enforcement: The Act provides mechanisms for the recovery of unpaid gratuity.

• Advisory Boards: The Act establishes advisory boards to provide guidance on matters related to gratuity.

Conclusion:

The Payment of Gratuity Act, 1972, is a crucial social security measure that ensures employees receive a financial benefit for their long and continuous service. It provides a framework for the payment of gratuity and protects employees from exploitation. The Act is essential for promoting social justice and ensuring the financial security of workers in India.